Demystifying Closing Costs
The purpose of establishing an approximation of the closing costs that the buyer will incur is to ensure that they have sufficient funds to complete the transaction with no surprises. Although it is good for you, the agent to know the breakdown, the buyers will want to know the approximate costs as a total. A good rule of thumb is 2-3% of purchase price. Every transaction is different. The cost of legal fees increases with the price of the property.
Note: mortgage application fees, moving expenses, any inspection costs, painting, appliances, costs to transfer phone, cable, internet hydro, etc. are not factored into closing costs and are calculated separately, and are in addition to.
Things to consider:
- Property Tax Adjustments: Will there be any property tax adjustments to be paid back to the seller on closing? If the seller has paid the taxes for the full year, then a credit for the portion of the taxes shall be paid back to the seller on closing.
- Property Tax Bank: If the lender requires that you pay principal, and interest and collect property taxes, then your buyer may need to have top-up tax funds in a tax bank so that when the interim tax bills are received by the bank there will be sufficient. Taxes are generally due in advance on March 15 and June 15.
- Heating Oil Adjustment: Is the property heated with oil? With properties that have oil-fired heating, the Seller generally fills the oil tank near closing and the Buyer refunds the cost of the oil in an adjustment on closing.
Legal Fees/Disbursements/Title Insurance
- Legal Fees: These are the legal closing costs for the buyer's lawyer for providing services. some lawyers have fixed legal fees. These fees are subject to HST.
- Disbursements: These fees include search costs, execution certificates, courier fees, certified cheques, faxes, photocopies, postage, conveyancer fee, communications, reasonable long-distance calls, and the Law Society Transaction Levy applicable to home sales.
- Title Insurance: Title insurance fees do vary between $191.00 and $1,000.00 based on the value of the home and details of the transaction.
What the Lawyer will do and what the buyer/Seller needs to do:
- Purchase Transaction (Buyer)
- Sale Transaction (Seller)